What Is Private Real Estate? A Wealth Advisor's Guide to the Asset Class

Max Gallagher, CFP
3 days ago
5 min read

Understanding the characteristics and investment considerations that come with residential, commercial and industrial real estate.

This is Part 1 of our four-part series on private real estate investing and wealth management. The full series:

What Is Private Real Estate?
Who Should Invest in Private Real Estate?
Direct Ownership vs. Passive Investment Through Funds and Syndications
How to Actively Navigate and Manage a Real Estate Portfolio

At 24Acres, we are strong believers in the power of real estate as a tool in your financial journey. That said, many real estate investors treat their property or portfolio more like a hobby than a business. If you would like to understand how we would think about implementing a more thoughtful approach to your own financial plan and real estate assets, schedule a complimentary, no-obligation introduction call.

What is Private Real Estate?

Real estate, as an asset class, consists of land and any permanent structures or improvements attached to it. It is broadly categorized into residential, commercial, and industrial real estate, each with distinct characteristics and investment considerations.

Residential – Properties intended for personal living spaces, including single-family homes, condominiums, townhouses, and multifamily apartment buildings.
Commercial – Properties used for business purposes, such as office buildings, retail centers, shopping malls, hotels, and mixed-use developments.
Industrial – Properties designed for manufacturing, logistics, warehousing, and production, including factories, distribution centers, and cold storage facilities.

Within each of these categories, there are two primary participants in the market: users and investors.

Users are those who personally occupy or operate within a space—such as families living in residential properties, businesses leasing office buildings, or companies utilizing warehouses for logistics.
Investors purchase properties with the intent to generate a return on investment, either through rental income, property appreciation, or a combination of both. Some investors are also users, such as business owners who purchase real estate for their own operations, but for the purposes of this article, we focus on investors evaluating properties as investment vehicles.

Understanding Real Estate Returns

Real estate returns are primarily driven by two key components: income return and appreciation return.

Income Return: This comes from rental income, which provides a steady cash flow and is often measured as a yield relative to the property’s value. Investors who focus on income return typically seek predictable cash flow and properties with high occupancy rates and stable lease agreements.
Appreciation Return: This reflects the increase in a property’s market value over time, driven by market demand, economic growth, and property improvements. Investors who prioritize appreciation are typically looking for properties in high-growth markets or those with value-add potential.

These two components are highly interconnected—higher rental income can enhance a property’s value, while strong appreciation potential can justify lower initial income returns. Institutional investors carefully balance these factors, structuring their real estate portfolios based on their risk tolerance, investment horizon, and financial goals.

Understanding how these elements interact is crucial for structuring a real estate portfolio that aligns with an investor’s risk tolerance and financial objectives.

Accessing Real Estate Investment

Investors can gain exposure to real estate in two primary ways: public real estate investments (such as REITs and real estate stocks) and private real estate investments (such as direct ownership and private funds).

Public Real Estate - Includes publicly traded Real Estate Investment Trusts (REITs) and real estate stocks, offering high liquidity, broad diversification, and passive ownership but subject to stock market volatility.
Private Real Estate Investment – Involves direct ownership or private fund participation, providing greater control, potential tax advantages, and stable cash flow but with lower liquidity and higher capital requirements.

For example, let’s say an investor is interested in office buildings, a sub-sector of commercial real estate. They can either:

Invest in a publicly traded office REIT, which provides exposure to hundreds of office buildings managed by professionals but is subject to daily stock price fluctuations.
Invest in private real estate by purchasing an office building outright or joining a real estate syndication where a group of investors collectively acquires office assets. This offers direct exposure but requires higher capital, less liquidity, and active management (if owned directly).

Take the Next Step

Most advisors will agree that real estate, in some capacity, belongs in a well-diversified portfolio. It offers low correlation to public equities and bonds, inflation protection through rental income, and stable long-term returns.

However, the decision to invest in real estate through public REITs or private deals is personal and highly nuanced. Investors must evaluate factors such as liquidity needs, tax planning, return expectations, and their willingness to be actively involved in management.

If you’d like a no-cost, no-obligation consultation with a Certified Financial Planner to discuss what makes sense for you, contact us.

Our next article in this four part series will cover Who Should Invest in Private Real Estate

Frequently Asked Questions

What is private real estate investing?

Private real estate investing involves purchasing property directly or participating in private funds and syndications, as opposed to buying shares of publicly traded REITs. It provides greater control over assets, potential tax advantages like depreciation and 1031 exchanges, and stable cash flow, but comes with lower liquidity and higher capital requirements than public real estate investments.

What is the difference between public and private real estate?

Public real estate includes Real Estate Investment Trusts (REITs) and real estate stocks traded on exchanges. They offer high liquidity, broad diversification, and passive ownership but are subject to daily stock market volatility. Private real estate involves direct ownership of property or investment through private funds and syndications. It offers greater control, potential tax advantages, and stable cash flow but requires higher capital commitments and has lower liquidity.

How do real estate investors make money?

Real estate investors generate returns through two primary components. Income return comes from rental cash flow, measured as a yield relative to the property's value, and is favored by investors seeking predictable, steady income. Appreciation return reflects the increase in a property's market value over time, driven by market demand, economic growth, and property improvements. These two components are interconnected — higher rental income can enhance a property's overall value, while strong appreciation potential can justify accepting lower initial income returns.

What types of real estate can you invest in?

Real estate is broadly categorized into three types. Residential includes single-family homes, condominiums, townhouses, and multifamily apartment buildings. Commercial includes office buildings, retail centers, shopping malls, hotels, and mixed-use developments. Industrial includes factories, distribution centers, warehouses, and cold storage facilities. Investors can access any of these categories through public markets like REITs or through private investment vehicles such as direct ownership, syndications, or private funds.

What is a real estate syndication?

A real estate syndication is a structure where a group of investors collectively acquires real estate assets. A sponsor or general partner identifies, acquires, and manages the property, while investors participate as limited partners providing capital. Syndications offer direct exposure to specific properties without requiring individual investors to handle active management, though they typically require higher capital commitments and offer less liquidity than publicly traded real estate investments.

Should I invest in REITs or private real estate?

The decision between REITs and private real estate depends on your individual financial situation, including your liquidity needs, tax profile, return expectations, investment time horizon, and willingness to be actively involved in management. REITs offer easy access, high liquidity, and broad diversification with passive ownership. Private real estate offers greater control, potential tax advantages such as depreciation deductions and 1031 exchanges, and the potential for higher risk-adjusted after-tax returns, but requires higher capital, longer holding periods, and more complexity. Most advisors agree that real estate in some form belongs in a diversified portfolio — the question is which method of access is right for you.